Harbour Capital Partners is a full-service hedge fund investment management platform based in London providing an operational infrastructure for a small or medium-sized funds.
We spoke to the fund’s managing director Gerard Moxon and started by asking him to explain the background to the company and the fund in particular?
A: "The background goes back to the stock market slide of 2000 through to 2003. Myself and my business partner David Thomas began to explore the possibility of looking at different investments, something that perhaps hadn’t been done before. The first thing we started looking at was the idea of tangible assets. Of course subjects such as property are very well covered in this country so there was no point looking for an investment fund or hedge fund in anything to do with property because it was not going to be any different or new. But one thing stood out as a very interesting possibility and that was the idea of art."
"We started to do some research on art and what we found was that the British Rail Pension Fund had a very successful investment in art from 1974 through to the mid-1990s, and invested between 1974 and 1980 more than $40m. The year 1974 was not unlike present market conditions in terms of cash, tripling of oil prices, collateral chaos – and despite all that the British Rail Pension Fund managed to have an incredible rate of return over a period of 20 years. They achieved a rateable return of 11.3 per cent per annum over that period of time."
"I started up the company with Jeremy Eckstein, who was the main adviser to the British Rail Pension Fund, and he forms part of the company today. David Thomas, former international banking director of Lloyds TSB Bank, will be chairman."
"We believe that there are other art funds out there but most of them have shown that art-related investments or assets can make good money but in our opinion none of them got the structure right. We have spent a lot of time working out the structure with Harbour that can enable investors to invest in art and to design their own portfolios."
Q: What was the thinking behind setting up the specific type of fund?
A: "The Dean Art fund is not exactly a hedge fund. It is a mixture of a hedge fund, a private equity fund and a normal investment fund. We have characteristics of all three. Certainly we occupy an alternative investment space and from that view we can be considered a hedge fund."
Gerard Moxon
Q: What is your investment strategy?
A: "The way we have designed the investment strategy overall is to invest in the more historical part of the art market up to the 1960s, 1970s when one would consider that contemporary art takes over. We don’t totally exclude contemporary art as there is also the possibility for investors to put a relatively small proportion into contemporary art. There is flexibility where investors have particular requirements or they want to invest particularly in contemporary art we can take into account what they want to do, for example we may have Russian or Chinese investors and it is possible to include examples of that art market."
Q: You said earlier that investors would be able to design their own portfolio. How would that work in practice?
A: "What we have put together here with Harbour is the possibility for a client to use a cell structure that enables individual investors to choose to be part of the general fund or to have their own distinct cell portfolios. For a sizeable investment of about $50m a client can have their own cell within the fund which would focus on art of a particular type."
Q: Are there any strategies you are avoiding?
A: "The most important area where we need to be very careful is contemporary art. The main reason why we are avoiding to a certain extent contemporary art is because – and our art advisers have put this very well – until an artist’s life is complete it is very difficult to create an absolute consensus on the value of that body of work."
"While artists are still alive there are differing views of what art is worth. With artists that are dead and buried it is easier to come to that consensus. That basically forms the basis of the pricing within the art market. That’s why we get wild fluctuations in contemporary art. What we are very concerned with, with regard to producing financial returns for investors, is being very careful with what we are investing in. It is an area where we have to be extremely careful if it’s contemporary art.
Q: Is there a benchmark that the fund is measured against?
A: Yes – the Mei Moses Art Index which gathers information from auction houses. It is run by two ex-professors of the Stern Business School in New York, who have basically created an art index by measuring most of art sold in auction. That doesn’t cover the complete art market but it does give a standard index, and includes all types of art. It monitors when it was last sold and each time it is sold – if it is sold obviously."
Historical dynamics of the art market
Source: Art Market Research.
"All Art" Index data is calculated up to April 2008
Old Master Index data is calculated up to February 2008
Modern Art Index data is calculated up to March 2008
S&P Index data is calculated up to May 2008
Q: So you imagine there will be a lot less volatility in the kind of art you are investing in?
A: "That is what we believe – yes."
Q: Are you targeting any particular sectors or any particular regions geographically?
A: "It is wherever there is established works."
Q: What types of investors do you think you will attract?
A: "We believe that what we have come up with in terms of the structure will make it interesting to institutional investors. It is not a product which is available to the normal retail client unless something like a bank wants to white label their own fund. We are talking to a couple of possibilities of banks white labelling their own fund but basically we are speaking to institutional investors.
Q: What do you think you will have to continue to attract new investors?
A: "I think we will need to establish a good track record over the first few years. All the statistics have shown that art has been an extremely good investment but the right structures have not been available for institutional investors to actually do it unless they have done it themselves. And a lot of them have not been prepared to put the work and effort in to do that. Here we a providing a vehicle."
"An interesting facet within our proposal is also the possibility to lease art. Obviously art that we are purchasing has certain costs with holding it in terms of storage and insurance, and what we are aiming to do is explore the possibilities. We believe that the possibility exists of leasing art to companies and high net worth individuals, offering them the ability to show the works of art that they are interested in in their head offices, or their homes, for a fee."
"The primary objective is to make money out of it but this is one way we believe that we hope to show that we can make money if there are certain tax advantages for individuals to rent art rather than buy it in some instances. A company will be set up to lease art back to investors and other interested parties. After all many companies rent their own plants: why would they not rent works of art? The most important works we would look to place in a museum if possible. The idea behind that is because a work of art placed in a museum will gain value in time from the added exposure."
Q: What have do done differently from other similar art funds?
A: "As I have mentioned before the structures are different. We also believe the management are extremely experienced. We have Jeremy Eckstein from the British Rail Pension Fund and a very good art advisory company advising us, and one of the very interesting differences between us and the other art funds is that we are open-ended."
"Some of our competitors have to some extent shot themselves in the foot by operating a closed ended fund. They are in a period where they have forced themselves for a period of years where they are actually closing the fund down. So they will be known to be selling art in the market. It is not a good situation to be in, in general. Ours is an open ended fund. If we have to sell and we are selling to take a profit – we don’t want everyone to know about it."
Q: Do you have any expectations of future growth with regard to assets under management?
A: "That is a difficult one, and in my experience until a client actually puts his hand in his pocket and pulls out his money it is hard to say what the figures will be. Our initial objective is $200m within a couple of years. We are expectant that we might achieve that objective but there is no guarantee of anything at this juncture."
Q: Do you have any predictions for the art market?
A: "If you look back as long as the last 50 years you will see it’s done as well as the S&P 500. Art has done very well over an extremely long period. It is difficult to predict but the world has shown us over the last few months that predictions are extremely difficult to do.
"Far be it for us to try and predict what the future will bring but our expectation is that it will continue to be a good investment. I would say with real certainty that this is a market that has a relatively fixed supply. There is a great deal of wealth in China still – we all know about the Russian as well – and together with Brazil and India these are four countries that have had a real impact over the last five years in the creation of wealth that will be all wanting in one way, shape or form, different aspects of a relatively fixed market."
Q: Have you had to overcome any initial scepticism from investors towards what is a different kind of fund from traditional funds?
A: "Funnily enough the last few months have probably created even greater interest. We have been trying to launch this fund in one shape or form for a few years now, and there wasn’t really enough interest before. There is certainly a great deal of interest now."
Q: Would you put that down to other types of funds struggling to perform?
A: "Far be it for me to speculate on whether other people have performed or not, but what I would say is it has shaken up our belief system to a certain extent. There has been talk of the collapse of capitalism and we have come relatively close to the collapse of some major banks, not only in the UK but in others too, so I think people are prepared to look at different types of investment."
"Here we have an investment which has a real asset backing. It is not based on something on a screen. It is a physical commodity which has real value, and has proved that other a long period of time. We believe that is of real interest to possible investors."
"A key thing to remember about this fund is that it is first and foremost an investment fund that happens to invest in art as an asset class. It is not a hobby collectors fund. It is not a personal collection being expanded into an open offering for related investors. This is an investment fund first and foremost whose underlying asset class happens to be art."
"I think that it is an actual diversifier for a well managed portfolio. It is definitely one of the contributors in the search for uncorrelated alpha. Both myself and David Thomas come from a very staunch banking background. It is not a fund being run by art collectors. It is being advised by some very senior art figures and is being run as an investment vehicle."
In addition to those focusing on art, funds tracking the markets for vintage wine, rare violins and even guitars have cropped up recently as individual investors look for assets able to hold their value in the current environment. Institutional investors are seeking alternatives in line with liability driven investment objectives, as well as matching assets and liabilities for regulatory purposes over the extreme long-term - a particular issue for pension funds.
Wine returns illustrated
Against global commodity and energy indices the performance of top clarets over the past year has been strong, according to data on the Guernsey-domiciled Vinum Fine Wine Bordeaux fund.
Scarborough, UK-based asset manager OWC reports the value of shares in its Vintage Wine Fund, fell 0.77 per cent through August 2008. Total returns from the FTSE through August was about -6 per cent, but between 1 August to 1 October, the index returned close to -17 per cent, according to Financial Express Analytics.
Lehman Brothers gets approval to sell $8m art collection